Xenon(XENE) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides Xenon Pharmaceuticals Inc.'s unaudited condensed consolidated financial statements and related notes for the periods ended June 30, 2025, and December 31, 2024 Item 1. Financial Statements This section presents Xenon Pharmaceuticals Inc.'s unaudited condensed consolidated financial statements and detailed notes for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets This section presents the company's condensed consolidated balance sheets, detailing assets, liabilities, and shareholders' equity as of June 30, 2025, and December 31, 2024 | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Total Assets | $674,281 | $798,139 | $(123,858) | | Total Liabilities | $40,303 | $43,236 | $(2,933) | | Total Shareholders' Equity | $633,978 | $754,903 | $(120,925) | | Cash and cash equivalents | $135,381 | $142,712 | $(7,331) | | Marketable securities (current) | $352,164 | $484,193 | $(132,029) | Condensed Consolidated Statements of Operations and Comprehensive Loss This section presents the company's condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2025, and 2024 | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Change (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | | Collaboration revenue | $— | $— | $— | | Research and development | $74,985 | $49,702 | $25,283 | | General and administrative | $19,244 | $19,402 | $(158) | | Net loss | $(84,706) | $(57,924) | $(26,782) | | Net loss per common share (Basic and diluted) | $(1.07) | $(0.75) | $(0.32) | | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Change (in thousands) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | :-------------------- | | Collaboration revenue | $7,500 | $— | $7,500 | | Research and development | $136,185 | $93,952 | $42,233 | | General and administrative | $38,282 | $34,193 | $4,089 | | Net loss | $(149,753) | $(105,855) | $(43,898) | | Net loss per common share (Basic and diluted) | $(1.90) | $(1.36) | $(0.54) | Condensed Consolidated Statements of Shareholders' Equity This section presents the company's condensed consolidated statements of shareholders' equity for the six months ended June 30, 2025, and 2024 | Metric | December 31, 2024 (in thousands) | June 30, 2025 (in thousands) | | :-------------------------- | :------------------------------- | :--------------------------- | | Common shares | $1,456,836 | $1,469,196 | | Additional paid-in capital | $199,149 | $213,892 | | Accumulated deficit | $(899,470) | $(1,049,223) | | Other comprehensive income | $(1,612) | $113 | | Total shareholders' equity | $754,903 | $633,978 | - Net loss for the six months ended June 30, 2025, was $(149.8) million, contributing to the accumulated deficit[14] - Stock-based compensation expense for the six months ended June 30, 2025, was $25.9 million[14] Condensed Consolidated Statements of Cash Flows This section presents the company's condensed consolidated statements of cash flows for the six months ended June 30, 2025, and 2024 | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | | Net cash used in operating activities | $(125,885) | $(77,339) | $(48,546) | | Net cash provided by investing activities | $116,770 | $65,999 | $50,771 | | Net cash provided by financing activities | $1,216 | $— | $1,216 | | Decrease in cash and cash equivalents | $(7,331) | $(11,909) | $4,578 | | Cash and cash equivalents, end of period | $135,381 | $136,734 | $(1,353) | Notes to Condensed Consolidated Financial Statements This section provides detailed notes explaining the company's financial position, performance, and accounting policies - Xenon Pharmaceuticals Inc. is a neuroscience-focused biopharmaceutical company dedicated to drug discovery, clinical development, and commercialization of therapeutics[16] - The company had an accumulated deficit of $1,049.2 million and a net loss of $149.8 million for the six months ended June 30, 2025[17] - Cash, cash equivalents, and marketable securities totaled $624.8 million as of June 30, 2025, expected to fund current operations for at least the next 12 months[19] - A prior period error was corrected, reclassifying $1.5 million of accretion of discounts on marketable securities from investing to operating activities for the six months ended June 30, 2024[23] - The company recognized $7.5 million in collaboration revenue for the six months ended June 30, 2025, due to a milestone payment from Neurocrine Biosciences for NBI-921355 entering a Phase 1 study[39] - As of June 30, 2025, the unrecognized stock-based compensation expense related to unvested stock options was $115.3 million, expected to be recognized over 2.8 years[35] - Future potential regulatory milestone payments to 1st Order Pharmaceuticals for azetukalner could be up to $6.0 million[42] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Xenon Pharmaceuticals Inc.'s financial condition, results of operations, liquidity, and capital resources, highlighting operating losses and R&D investments Overview This section provides a strategic overview of Xenon Pharmaceuticals Inc.'s neuroscience-focused biopharmaceutical pipeline and clinical development programs - Xenon Pharmaceuticals Inc. is a neuroscience-focused biopharmaceutical company advancing an ion channel product portfolio for epilepsy and depression[51] - Azetukalner, a Kv7 potassium channel opener, is in late-stage clinical development for multiple indications including focal onset seizures (FOS), primary generalized tonic-clonic seizures (PGTCS), major depressive disorder (MDD), and bipolar depression (BPD)[52] - Phase 3 X-TOLE2 clinical study of azetukalner in FOS has completed patient recruitment, with topline data anticipated in early 2026 - Phase 3 X-NOVA2 and X-NOVA3 clinical trials evaluating azetukalner in MDD are underway and screening patients - Phase 3 X-CEED clinical study evaluating azetukalner in BPD I and BPD II depression has been initiated - A Phase 1 study is underway for NBI-921355, a selective Nav1.2 and Nav1.6 inhibitor, as part of the collaboration with Neurocrine Biosciences for epilepsy[55][56] - Early-stage pipeline includes XEN1120 (Kv7 channel opener for pain) in Phase 1, XEN1701 (Nav1.7 development candidate for pain) in Phase 1, and a Nav1.1 lead candidate expected to enter IND-enabling studies in 2025 for Dravet Syndrome[60] Financial Operations Overview This section summarizes Xenon Pharmaceuticals Inc.'s financial performance, including revenue sources, net losses, and expected increases in operating expenses - Revenue is primarily derived from collaboration and licensing agreements; no product sales have been generated to date[58] - The company incurred net losses of $149.8 million for the six months ended June 30, 2025, and had an accumulated deficit of $1,049.2 million[57] - Operating expenses are expected to increase substantially due to continued investment in R&D, clinical trials, regulatory approvals, manufacturing, and preparations for potential commercial launch of azetukalner[61][65][68] - Collaboration revenue of $7.5 million was recognized for the six months ended June 30, 2025, from a milestone payment related to NBI-921355's progression into a Phase 1 clinical study[56][62] Critical Accounting Policies and Significant Judgments and Estimates This section outlines the critical accounting policies and significant judgments and estimates used in preparing the financial statements - The condensed consolidated financial statements are prepared in conformity with GAAP, requiring significant estimates and assumptions[72] - Critical accounting policies include revenue recognition, research and development costs, and stock-based compensation[73] - No material changes in critical accounting policies and significant judgments and estimates occurred during the six months ended June 30, 2025[74] Results of Operations This section details the company's financial results for the three and six months ended June 30, 2025, and 2024, including revenue, expenses, and net loss | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | | Collaboration revenue | $— | $— | $— | | Research and development expenses | $74,985 | $49,702 | $25,283 | | General and administrative expenses | $19,244 | $19,402 | $(158) | | Interest income | $7,199 | $10,837 | $(3,638) | | Foreign exchange gain | $1,698 | $10 | $1,688 | | Loss before income taxes | $(85,332) | $(58,257) | $(27,075) | | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | | Collaboration revenue | $7,500 | $— | $7,500 | | Research and development expenses | $136,185 | $93,952 | $42,233 | | General and administrative expenses | $38,282 | $34,193 | $4,089 | | Interest income | $15,282 | $22,192 | $(6,910) | | Foreign exchange gain | $1,733 | $177 | $1,556 | | Loss before income taxes | $(149,952) | $(105,776) | $(44,176) | - Direct external costs for azetukalner increased by $28.3 million for the six months ended June 30, 2025, driven by ongoing Phase 3 clinical trials in epilepsy and MDD, and start-up costs for the Phase 3 BPD program[77] - Personnel-related R&D costs increased by $12.8 million for the six months ended June 30, 2025, due to higher headcount supporting late-stage development[77] - Interest income decreased by $6.9 million for the six months ended June 30, 2025, due to a lower average balance of marketable securities and lower average market yields[80] - Foreign exchange gains increased by $1.6 million for the six months ended June 30, 2025, due to Canadian dollar fluctuations and higher Canadian dollar cash balances[80] Liquidity and Capital Resources This section discusses the company's cash position, cash flow activities, and capital resources, assessing its ability to fund future operations - As of June 30, 2025, the company had $624.8 million in cash, cash equivalents, and marketable securities, which are expected to fund operating expenses and capital expenditure requirements for at least the next 12 months[81][86] - Net cash used in operating activities increased to $125.9 million for the six months ended June 30, 2025, from $77.3 million in the prior year, primarily due to higher R&D and G&A expenses[88] - Net cash provided by investing activities increased to $116.8 million for the six months ended June 30, 2025, from $66.0 million in the prior year, mainly due to a decrease in net purchases of marketable securities[89] - Net cash provided by financing activities was $1.2 million for the six months ended June 30, 2025, primarily from stock option exercises[90] - As of August 7, 2025, the company had 77,105,799 common shares outstanding, along with over 14 million potentially dilutive securities[93] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details Xenon Pharmaceuticals Inc.'s exposure to market risks, including foreign currency and interest rate sensitivity, and their potential financial impact Foreign currency risk This section describes the company's exposure to foreign currency exchange rate fluctuations, particularly with Canadian dollars - The company is exposed to foreign currency exchange rate risk, particularly with Canadian dollars, as it holds CAD-denominated assets and incurs significant expenses in CAD[95][96] - As of June 30, 2025, the company held CAD$84.1 million in Canadian dollar denominated cash and cash equivalents and marketable securities[95] - The company does not currently hedge its foreign currency exposure and does not believe a 10% increase or decrease in the U.S. dollar's value relative to the Canadian dollar would materially affect operating results[97] Interest rate sensitivity This section assesses the company's interest rate sensitivity, primarily related to its cash, cash equivalents, and marketable securities - Interest rate sensitivity is primarily attributable to the company's $624.8 million in cash, cash equivalents, and marketable securities as of June 30, 2025[98] - A 100 basis point (1%) increase in interest rates would result in an approximate $3.3 million decrease in the fair value of marketable securities[98] - The company does not use derivative financial instruments to manage interest rate exposure[98] Item 4. Controls and Procedures This section evaluates Xenon Pharmaceuticals Inc.'s disclosure controls and procedures, confirming their effectiveness and reporting no material changes in internal control Evaluation of disclosure controls and procedures This section details the management's evaluation and conclusion on the effectiveness of disclosure controls and procedures - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective, in design and operation, at the reasonable assurance level as of June 30, 2025[99] Changes in internal control over financial reporting This section reports on any material changes in internal control over financial reporting during the period - There were no material changes in internal control over financial reporting during the period ended June 30, 2025[100] Inherent limitation on the effectiveness of internal control This section acknowledges the inherent limitations on the effectiveness of any internal control system - The effectiveness of any internal control system is subject to inherent limitations and can only provide reasonable, not absolute, assurances[101] PART II. OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, other disclosures, and exhibits Item 1. Legal Proceedings This section confirms Xenon Pharmaceuticals Inc. is not currently involved in legal proceedings expected to materially adversely affect its business or financial condition - The company is not presently a party to any legal proceedings that are reasonably expected to have a material adverse effect on its business, financial condition, operating results, or cash flows[102] - Litigation, regardless of outcome, can adversely impact the company due to defense and settlement costs, and diversion of management resources[102] Item 1A. Risk Factors This section details significant risks and uncertainties that could materially harm Xenon Pharmaceuticals Inc.'s business, financial condition, and operating results Risks Related to Our Financial Condition and Capital Requirements This section outlines risks associated with the company's financial condition, including operating losses, funding needs, and potential dilution - The company has incurred significant operating losses since inception, with an accumulated deficit of $1,049.2 million as of June 30, 2025, and expects to continue incurring losses for the foreseeable future[104] - Additional funding will be required to develop product candidates and fund operations, which may not be available on acceptable terms, potentially forcing delays or termination of programs[109][112] - Raising additional capital through equity or convertible securities would cause dilution to existing shareholders and could cause the market price of common shares to fall[115] - The company is subject to foreign currency exchange rate risk, particularly with Canadian dollars, and does not currently hedge this exposure, which could impact operating results[119] Risks Related to Our Business and Industry This section details risks inherent to the company's business and the biotechnology industry, including competition, growth management, and data security - The biotechnology and pharmaceutical industries are highly competitive, with many competitors possessing greater financial resources and expertise, potentially reducing Xenon's commercial opportunities[120][122] - The company has no prior experience in completing Phase 3 clinical trials, obtaining regulatory approval, or independently commercializing products, making assessment of future commercialization difficult[125] - Managing growth, including increasing headcount and expanding operations, presents difficulties and could divert management attention and financial resources[136][137] - Evolving global data privacy and security laws (e.g., EU GDPR, UK GDPR, CCPA, My Health My Data Act, Protecting Americans' Data from Foreign Adversaries Act) require substantial compliance costs and any failure could harm business and operations[138][139][140][141] - The company's business and operations could suffer from information security incidents (e.g., cybersecurity breaches, system failures), leading to loss of intellectual property, business disruptions, and significant liabilities[143] - International operations expose the company to risks such as differing regulatory requirements, reduced intellectual property protection, economic instability, and foreign currency fluctuations[145] - Xenon was a Passive Foreign Investment Company (PFIC) for 2024 and may be in 2025, which could result in adverse tax consequences for U.S. holders of its common shares[147][149] Risks Related to the Discovery, Development and Commercialization of Our Product Candidates This section covers risks associated with the discovery, development, and commercialization of product candidates, including clinical trial success and regulatory approvals - The company's business substantially depends on the successful development, regulatory approval, and commercialization of azetukalner, which is subject to numerous risks including clinical trial success, regulatory processes, and market acceptance[165][166] - Clinical trials may fail to adequately demonstrate the safety and efficacy of product candidates, leading to delays, termination of development, or a more restrictive label, materially harming the business[175][176][191] - Difficulties in patient enrollment for clinical trials could significantly delay or prevent successful completion, increasing costs and jeopardizing regulatory approval[179][181] - The regulatory approval processes of the FDA, EMA, and other foreign jurisdictions are lengthy, expensive, and unpredictable, with no guarantee of timely approval or approval at all[196] - Product liability lawsuits, arising from clinical testing or commercialization, could result in substantial liabilities exceeding insurance coverage and require limitations on commercialization[203][204] - The company lacks its own sales, marketing, and distribution capabilities, requiring significant investment or reliance on third parties, which may not be successful or favorable[207][208] - Approved product candidates will be subject to ongoing regulatory obligations and review, potentially leading to significant additional expenses, delays, and restrictions[211][214] - Future product candidates containing controlled substances will face additional regulatory requirements, potential delays, and adverse public perception[216][220] - Unfavorable third-party coverage and reimbursement practices, along with pricing regulations, may adversely affect demand and profitability for approved products[222][224] - Healthcare reforms in the U.S. and other jurisdictions, including drug pricing initiatives (e.g., Inflation Reduction Act), could increase commercialization costs and affect product prices[228][229][233] - Disruptions at government agencies (e.g., FDA staffing/funding shortages) could delay product development, approval, or commercialization[238][239] Risks Related to Our Dependence on Third Parties This section addresses risks arising from the company's reliance on third parties for development, manufacturing, and clinical trials - The successful development and commercialization of partnered products and product candidates are dependent on the research, development, and marketing efforts of collaborators (e.g., Neurocrine Biosciences), over whom the company has limited control[240] - Failure to establish new collaborations or maintain existing alliances could adversely affect the ability to develop product candidates and commercialize products, potentially increasing cash expenditures and requiring additional financing[243][245] - Reliance on third parties for manufacturing product candidates increases the risk of insufficient quantities, raw material issues, quality control problems, and potential delays in clinical trials or commercialization[245][246] - Third-party manufacturers may face difficulties in scaling up production or optimizing manufacturing processes, leading to increased costs and delayed commercialization[252] - Reliance on third parties (e.g., CROs, academic institutions) to conduct pre-clinical studies and clinical trials means less control over timing and cost, and potential delays or data rejection if they fail to meet contractual duties or regulatory requirements[253][254][255] Risks Related to Intellectual Property This section details risks concerning the company's intellectual property, including patent protection, infringement claims, and trade secret safeguarding - The company may be unsuccessful in obtaining or maintaining adequate patent protection for its product candidates, or issued patents may be found invalid or unenforceable, failing to provide competitive advantage[261][263] - Protecting intellectual property rights globally is expensive and challenging, as foreign laws may offer less protection, making it difficult to prevent infringement in certain countries[265] - Claims that the company's product candidates infringe third-party intellectual property rights could result in costly litigation, require substantial time and money, and potentially prevent or delay development/commercialization[274][278] - Unfavorable outcomes in intellectual property litigation could limit research and development activities, commercialization efforts, or lead to significant liabilities[280][281] - Breaching license agreements could result in the loss of critical license rights, materially harming the business[284] - Inability to prevent unauthorized disclosure of trade secrets and proprietary information could compromise the company's competitive position[285] - Changes in U.S. or foreign patent law could increase uncertainties and costs in patent prosecution and enforcement, impairing the ability to protect product candidates[288] - Failure to obtain patent term extensions under the Hatch-Waxman Act or similar foreign legislation could shorten exclusive marketing rights and reduce revenue[290][291] - Inadequate trademark protection could hinder name recognition in target markets and adversely affect the business[293][295] Risks Related to Ownership of Our Common Shares This section outlines risks associated with owning the company's common shares, including market price volatility, dilution, and governance differences - The market price of the company's common shares may be volatile due to various factors, including clinical trial results, regulatory announcements, competitor actions, and general market conditions, potentially leading to substantial losses for purchasers[296][297] - Future sales and issuances of common shares or securities convertible into common shares would cause dilution to existing shareholders and could cause the market price to fall[298][300] - The company is governed by Canadian corporate and securities laws, which may affect shareholder rights differently than U.S. laws and could delay or discourage acquisitions[301][303] - U.S. civil liabilities may be difficult to enforce against the company or its non-U.S. directors and officers due to their location and governing laws[304] - The company is at risk of securities class action litigation, which could result in substantial costs and diversion of management's attention[305] - Management has broad discretion over the use of cash, and ineffective application could adversely affect results of operations and common share value[306] - The company does not anticipate paying any cash dividends on its common shares in the foreseeable future, meaning capital appreciation is the sole source of gain for investors[307] General Risk Factors This section covers general risk factors, including unstable market conditions and compliance costs with corporate governance regulations - Unstable market and economic conditions, including global credit disruptions, inflation, and banking sector instability, may seriously and adversely affect the company's business and financial condition[311] - The company incurs significant and ongoing costs due to compliance with corporate governance laws and regulations (e.g., Dodd-Frank, Sarbanes-Oxley, CBCA, SEC rules) and evolving ESG matters[312][314] Item 5. Other Information This section provides additional information not covered elsewhere, specifically addressing Rule 10b5-1 trading plans Rule 10b5-1 Trading Plans This section reports on the adoption or termination of Rule 10b5-1 trading plans by directors or officers - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the last fiscal quarter[315] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, employment agreements, and certifications - Exhibits include corporate articles, by-laws, an employment agreement, and certifications from the Chief Executive Officer and Chief Financial Officer[318] - Certifications 32.1 and 32.2 are not deemed filed with the Securities and Exchange Commission[317] SIGNATURES This section contains the official signatures of authorized officers, confirming the submission of the Quarterly Report on Form 10-Q - The report was signed by Ian Mortimer as President and Chief Executive Officer, and Interim Chief Financial Officer, on August 11, 2025[321]